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Weekly Update: September 7-14

Weekly Update: September 7-14

Tamerlane Newsletter
September 18, 2022

Top News

The Shanghai Cooperation Organization (SCO) is set to host its annual summit in Samarkand from September 15-16, with China’s Xi Jinping, Russia’s Vladimir Putin, and India’s Narendra Modi set to meet amid global tensions and rising economic uncertainty. Tamerlane will have a special report on all of the action at the SCO summit after its conclusion.

The National Bank of Uzbekistan (NBU) paused its plans to issue bonds in the Russian market, according to Natalya Yatsenko, Executive Director of Gazprombank. The NBU is reportedly waiting for a more “favorable window” to enter the Russian debt market, after the bank signed agreements with Russian banks in September 2021 and registered its prospectus with the Central Bank of Russia in November.

The Emirati sovereign wealth fund Mubadala and energy holding company TAQA agreed to invest up to USD 1 billion in the Talimarjon thermal power station on September 9. At a signing ceremony in Tashkent, Mubadala and TAQA established a joint venture that will operate the Talimarjon power station that includes USD 300 million in equity capital and USD 700 million for the plant’s existing loans.

The Abu Dhabi Development Fund extended a 17-year, USD 300 million loan at 2.5% annually for the modernization of road and water supply infrastructure in Samarkand. The loan project had been originally agreed between Uzbekistan and the United Arab Emirates in 2019 but faced delays due to the COVID-19 pandemic.

From September 12, the Moscow Stock Exchange will begin trading for the Uzbek soum, with trading on the spot market of the Uzbek soum – Russian ruble (UZS/RUB) currency pair.

Local Markets

A presidential decree expanded the remit of the Uzbek Direct Investment Fund (UzDIF), a state fund established to invest in Uzbek companies, to allow the fund to increase its investment stakes from 30% to 49% and to sell assets and shares in portfolio companies without following privatization regulations. The decree also transformed UzDIF from a joint-stock company to an LLC with authorized capital of USD 100 million that could be gradually increased to USD 1 billion. The head of UzDIF, Otabek Nazirov, is actively hiring new staff as the fund prepares to deploy capital.

The Uzbek stock market’s decline over the summer was driven by expectations for large share issuances by UzAuto Motors and Humans in the fall, according to Executive Director of Freedom Finance Uzbekistan Egveny Mozhaiko. The EqRe Blue Index, which tracks liquid Uzbek equities, fell 15.8% over the summer.

The RSE Toshkent registered a 1.5-year UZS 50 billion (USD ) bond at 23% from Uzagrolizing, a state-owned agricultural machinery leasing enterprise.

Uzbekistan’s State Assets Management Agency (UzSAMA) appointed consultants for the privatization of several state-owned assets including pharmacy chain Dori-Darmon and the Chinaz Oil Refinery. Portfolio Investments and Gemstone Capital will assist UzSAMA with the privatization of 51% of Dori-Darmon’s shares, while Mosaic Financial will help privatize 100% of the Chinaz Oil Refinery.

Macroeconomics

On September 8, the Central Bank of Uzbekistan held the policy rate at 15%, pointing to upcoming seasonal growth in economic activity and aggregate demand from the agricultural sector and the potential for upcoming inflationary risks from rising energy and import costs as reasons for keeping the main lending rate unchanged.

Despite inflationary pressures, inflation expectations for households fell to 15.3%, as well as 14.1% for entrepreneurs.
In the interbank money market, weighted average interest rates fell 14.6%.

Fitch affirmed Uzbekistan’s “BB-” credit rating with a stable outlook on September 9. The ratings agency highlighted Uzbekistan’s resilience in the face of the economic shock from Russia’s invasion of Ukraine and pointed to the country’s low government debt, high growth rate relative to peers, and robust fiscal buffers as key ratings drivers. Major weaknesses include commodity dependence, high inflation, low GDP per capita, and weak governance.

According to the World Gold Council, the Central Bank of Uzbekistan bought nine tons of gold in July 2022, placing it among the top five purchasers of gold for the month. At the end of July, the Central Bank of Uzbekistan’s gold holdings stood at 373 tons, 11 tons more than at the beginning of 2022 despite the central bank’s selling spree at the beginning of the year.

Business

Agrobank, the fourth largest bank in Uzbekistan by total assets, launched its online marketplace, Chakana, which offers buy now pay later, financing, and fast delivery services along with the ability to buy goods directly from suppliers without additional markups.

From January-July 2022, the State Statistics Committee registered 20,850 newly established business in the trade sector, up nearly 3x from the same period in 2018.

Government & Politics

Uzbekistan’s budget deficit reached 3.7% of GDP in the first half of 2022, according to Minister of Finance Timur Ishmetov. The deficit, which grew due to due indexing of state pensions at 12% rather than earlier planned 10% as a result of rising inflation, was reportedly covered by domestic bond issuances and external loans. In May, the Central Bank of Uzbekistan forecasted a budget deficit of 4% of GDP for 2022.

The Strategic Development Agency, established in 2021, has been transformed into the Strategic Reforms Agency (SRA), which will now play a key role in assessing and implementing the Uzbek government’s reform program as well as working to involve international financial institutions and foreign specialists. The SRA will be under the Presidential Administration and headed by the former Deputy Head of the Ministry of Investment and Foreign Trade Shukhrat Vafaev.

Uzbekistan’s parliament, the Oliy Majlis, confirmed Vladimir Norov’s appointment as Minister of Foreign Affairs on September 9. Norov stepped in as acting Foreign Minister after Abdulaziz Kamilov was appointed Deputy Secretary of the Security Council for Foreign Policy and Security. Norov was previously Minister of Foreign Affairs from 2006 to 2010 and served as ambassador to several European countries as well as Secretary General of the Shanghai Cooperation Organization.

Regional News

Kyrgyzstan may introduce a gold and digital som, according to the head of the Council of Ministers Akylbek Zhaparov. The remarks came amid a larger discussion of Kyrgyzstan’s fiscal policy framework for 2023-2027.

Trade turnover between Tajikistan and Russia grew 20% yoy in the first half of 2022. Dushanbe is set to host the “Russia – Tajikistan” investment forum on September 15, which is expected to be attended by more than 100 Russian companies.

Pope Francis traveled to Kazakhstan on September 13 for a meeting with religious leaders from around the world. The Pope also met with Kazakh President Kaysm-Zhomart Tokaev.